Behold the magnificent paradox at the center of British politics. Tax is forecast to reach 38% of GDP by 2030-31 — the highest burden since the 1940s, an era of ration books and rubble — and yet the average British worker does not pay much of it. The average single earner hands over less on earnings than most peers across the OECD, the rich-country club, and less than that same earner used to. So whose money is the Treasury spending? For the answer, The Economist introduces a trio of specimens: Sue, Henry and Walter.

Sue is the Standard Undertaxed Earner, Britain’s median taxpayer, earning £18,700 ($23,100) in 2022. Sue is winning. New research by Arun Advani, an economist, and his co-authors finds her average effective tax rate fell from 17% to 12% between 2008 and 2022 — though it will have crept up a bit since, thanks to stealthy recent rises. Sue enjoys high state spending and a shrinking bill for it, and she can do so only because of her richer friends.

Because the money has to come from somewhere, and here is where: the top 10% of taxpayers, everyone earning over £51,000 in 2022, received 40.5% of taxable income but paid 60% of income-related taxes. The top 1% — over £173,000 — paid an effective average rate of 36% on their remuneration, up from 33% in 2008. Politicians love to lump this whole tier together as “the rich,” one contented cash-cow, forever milkable. But the cow, it turns out, is two very different animals.

Henry first: the High Earner, Not Rich Yet. A put-upon professional in his 40s who earns his crust through actual labour. He earns too much to qualify for free childcare and too little to comfortably afford a family house in inner London — a man squeezed so exactly between the brackets that half of the top 1%, who are often Henrys, paid effective tax rates near the top rate of 47% in 2022.

Then there is Walter: Wealthy Already, Lightly Taxed, Ever Richer. A millionaire many times over, whose income flows not from labour but from capital gains. Four nannies for his four homes; free childcare is beneath his notice. And Walter’s tax bill? Among the top 0.01% — remuneration above £5m in 2022 — half paid effective rates under 30%, and a quarter paid under 20%. Walter’s secret is no secret at all: capital-gains tax. The top marginal rate has climbed since 2022 from 18% to 24%, which remains a comfortable limousine ride below the 47% top rate on earnings.

The government, squeezed fiscally, is now eyeing capital-gains rises at the budget on October 28th to balance the books. Done sensibly — loopholes welded shut, new investment allowances to encourage saving — it could plausibly raise real revenue. But Walter is wily. Any proposal will need to be watertight against capital flight and the tax-avoidance industry’s endlessly inventive plumbing.

And that, right there, is Henry’s misfortune, the whole grim geometry in a single line: Sue has the votes. Walter has the accountants. Henry, too rich and too poor to count, simply stacks up the tax bills and pays them. ■